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GKI projects GDP growth of 3.8% in 2017, 2018

Given the high rate of investments in Hungary, economic research institute GKI has raised its GDP growth forecast from 3.5% to 3.8% for both this year and the next. Despite the positive outlook, there are long-term risks too, GKI added.

Both the budget deficit and government debt are showing positive trends and inflation will be no more than 3% annually, online portal index.hu reports, quoting GKI figures. The unemployment rate is set to fall to about 4.2% in 2017 and 4% in 2018, GKI said.

GKI expects the general government deficit to remain below the 3% target in both 2017 and 2018, projecting a deficit of 2.5% this year. Government debt is projected to fall to 73% of GDP this year, compared to 74.1% in 2016.

GKI sees inflation accelerating to 2.5% as an annual average this year, and to around 3% in 2018.

GKI expects gross wages to grow 13% and real wages to rise 10-11% in 2017, noting that purchasing power will increase at a considerably slower pace. In 2018, it predicts gross wages will grow 7% and real wages by just 4% as inflation is expected to accelerate.

Consumption is set to grow 3.5% this year, compared to 4.2% in 2016, and will slow to 3% in 2018, GKI said. As the new EU investment funding cycle picks up speed, the investment volume is expected to grow by at least 20% this year, and 9% in 2018.

GKI forecasts construction sector output growth of 23% in 2017 and 12% in 2018. Industrial output is set to grow around 5% both this year and in 2018.

Retail sales volume is expected to increase by 4.5% this year and by 3.5% in 2018, according to GKI.

In the farm sector, the research institute projects output will fall by 10% this year, but will grow by 5% in 2018.

Given the profound changes expected in the EU in the near future, the Hungarian government will need to take a decision regarding its EU policy, including joining the euro zone. If not, Hungary risks drifting to the periphery of the EU, GKI warned.